Midas Holdings Limited’s (Midas) 3Q17 revenue improved 11.5% YoY to RMB411.0m, mainly due to a 16.9% growth in its Aluminium Alloy Extruded Products (AEP) revenue to RMB347.2m on higher export sales.

Midas’ 3Q17 overall gross margin improved 3.6ppt YoY to 28.2%, lifted mainly by a 3.1ppt improvement in AEP’s gross margin to 27.9%, and a 4.4ppt improvement in its Aluminium Alloy Stretched Plates (AASP) to 29.0%.

In-line with higher business volume, 3Q17 operating expenses rose 18.1% YoY to RMB72.9m on higher transportation costs, as well as a 47.6% increase in finance costs on higher interest rates.

Share of profits from an associate (NPRT) also plunged 40.4% YoY to RMB7.4m, mainly due to decreased delivery to its customers during 3Q17. Consequently, coupled with a 30.6% YoY decline in income tax, 3Q17 PATMI grew 6.6% to RMB24.1m.

For 9M17, PATMI jumped 111.3% YoY to RMB108.3m, forming 76.9% of our FY17 forecast. The earnings growth in 9M17 was largely due to inclusion of AASP business, coupled with an improvement in overall gross margin.

During 3Q17, Midas’ AEP segment secured three supply contracts worth RMB184.4m that are slated for delivery in FY17, while NPRT secured three metro train car supply contracts worth RMB2.4b, with deliveries scheduled between Jun 18 and Mar 21.

On in-line 9M17 results, we maintain HOLD on Midas, with an unchanged FV of S$0.225.

Source: OCBC Research - 14 Nov 2017